Loan forbearance and UNFAIR Suspended Payments?

Question

My question is when someone goes into a loan forbearance, why does the loan company put a suspension on payments? My neighbor at one of my properties in PA missed 3 mortgage payments. Her mortgage company gave her a forbearance option, she has been in the application process for 7 months and is not able to pay any of her monthly payments. Every month they send her a letter of completion of her application and to await a decision. Then a week or so later she will receives another letter stating more information needed for decision. Her husband and her are nearly $10,000 more in mortgage debt due to the suspended payments. I believe she should consult with a lawyer at some point. It's almost as if the loan company is buying themselves time so she goes deeper into a hole of debt to the point her and her husband won't be able to catch up in payments. I saw the letters that were sent to her and they are all redundant and asking for documents she has sent already. I have never seen this happen with loan forgiveness, then again I have never been in Forclosed and know very little of the forgiveness process. Believe me as an investor I would love to swoop in and buy the property for peanuts, but they have been great neighbors of mine and my tenants for years. They are an elderly couple I told them I would ask around to see if I can figure out if this is standard procedure. Any advice would be helpful. Thanks!

Dion DePaoli · Answer

@Wayne Brooks pinged me. I can add some clarity on this.What is being described sounds common. The borrowers fell on hard times and inquired about relief from the servicer. The servicer agreed to forebear the loan and to consider the borrowers for a modification. So two separate things are happening. The forbearance and the modification request. The forbearance would mean the payments being sent in on the loan are less than what is due. So these payments are going into suspense in an unapplied account until a decision is made on how to apply the payments. The payments will stay in an unapplied account until the payments are applied to principal, interest and escrow. How those payments are applied will be up to the servicer and loan investor to determine with the general idea to capitalize the least amount of the loan as possible. From the post it is not clear what the term of the forbearance is/was. In the event the borrowers have misunderstood the term limit of forbearance then late payments might be being applied to the suspense/unapplied since the payment they are making, believing they are being forbear, are insufficient for the account. (Not full PI&TI) Insufficient payments made on an account also go into a unapplied or suspense account until applied to interest, principal and escrow. I mention that because typically forbearance is not indefinite. It starts and ends regardless of the borrower's inquiry into additional account relief through modification or their success or lack thereof with delivering the hardship packet back.While the loan is being forebear the borrowers were delivered a hardship packet which needs to be filled out and compiled and turned in. The point of this exercise is to determine what level of relief is needed on the loan for the borrowers to maintain the account. As the borrower sends in the material requested additional hardship packet letters will likely go out which do not live-update the items missing or needed, so they can look like the entire list in a repeating fashion. That may seem absurd but in large servicer operations it is not practical for the mailing lists to be updated with items sent and not received. The take away from the letter is something on the list has not been received or is not proper. The borrower's should make contact with the servicer and inquire about what item(s) have not been received or turned in incorrectly. They should then take steps to correct any defective items turned in or turn in any missing items requested.This too is not uncommon. Borrowers think they sent in "everything" but some of the items sent are not proper or can not satisfy the item requested. Examples could be bank statements missing pages, such as the back page was not copied even though no material bank information exists on it only disclaimers and fine print. Another example is paystubs which do not properly show year to date earnings or tax deductions. The final example for the sake of this post could be failing to send in an award letter for SSI or other government entitlement benefits. There are numerous items which can be messed up or improperly sent in. They key for them is to call and ask to get a detailed response and fix it. Only AFTER all items are properly sent and received must a mortgagee respond to the request for relief. So no actual payment plan need be mentioned until that point. The mortgagee can issue the hardship packet requirements and give the borrower a grace period to deliver said items and upon the grace period expiring along with the failed delivery of items they can deny relief. These matters can be confusing and aggravating for borrowers. It doesn't help when the public banter responds with ideas of incentives for a mortgagee to seize a property. In the state of Pennsylvania foreclosure is judicial and can favor the borrower. A mortgagee can never simply seize a property. The process of foreclosure is a formal one. A mortgagee is only due the amounts under the note and nothing more. Payments sent in by a borrower held in suspense or unapplied would have to be applied to the account prior to any approval of amounts due from court ordering the sale.Again, the steps toward remedy here are: (1) Contact loss mitigation person and inquire about missing or inadequate items sent; (2) Send in those items (3) Await relief responseOnce all items are sent in properly a mortgagee must respond with a plan or denial of relief within 30 days. Again, as I mentioned only after all requested items are received and proper. If the borrower wants to track that moment and count off the days and they feel the relief response is being withheld unreasonably then they can contract the Consumer Financial Protection Bureau ("CFPB") for free. The CFPB is the consumer watchdog organization and they will open an investigation with the servicer and a decision will come shortly after that. The CFPB has authority over mortgage servicing companies and their practices and can audit files upon request. The borrowers can certainly seek out an attorney if they so wish but like I said the CFPB is free. If the borrowers feel they have been damaged by the mortgagee or mortgage servicer the pursuit of recovering those damages would require an attorney. While the latter does happen from time to time, it is not the norm.Hope that helps.

Dion DePaoli · Answer

@Angie Williams in regards to legal counsel it is not going to hurt but it is not clear by the post that they have suffered any actual damages yet so I am not sure the attorney will be able to do any more than the CFPB can do for free. Certainly if they feel that they have been harmed they should seek legal counsel. Best of luck to them.

Thomas Standen · Answer

@Dion DePaoli this is a great response!Coming from a servicing point of view the borrowers must remember as @Dion DePaoli wrote non-communication and non-payment are two of the worst things you can do. Additionally for the Servicer to suggest they stop making payments again is a violation of the CFPB Servicing Final rules. The borrower has may at any time request a loss mitigation application from the servicer, who then is required to send it. However there is NO requirement for the servicer to do anything if the borrower does not submit a COMPLETE application.Remember the serivcer has to walk a fine line when dealing with the borrower, contact them too much they are harassing, not enough and they are not helping the borrower. The borrower on the other hand can follow up as much as they want and i would recommend this...its their home!

Dion DePaoli · Answer

@Angie WilliamsThe answer above came from me not Wayne. Wayne pinged me for a response so he can have some credit. Not a huge deal but just wanted to make sure you understood who you were getting advice from.A couple new ideas in your last post surfaced. The borrowers have NOT been sending in payments?That is a horrible idea. In the original post or two it sounded like they were paying and those payments were going into suspense. Now you mention they are not paying at all. They need to send in their accumulated payments as soon as possible. Like now. NEVER stop paying. It is a violation for a any mortgage servicer to suggest borrowers stop paying their monthly payments in order to better qualify or be approved for a modification. Payment relief is not dependant on a borrower being in serious default. Relief can be requested at any time. Once relief is requested the servicer must send the hardship packet. Once the packet is received they must respond to the request for relief within 30 days.Secondly, it is unfortunate that the servicing contact seems rude and uncaring. Understand that often times these folks are nowhere close to those who make decisions on the loan. They tend to merely be front line workers and have to deal with lots of borrowers and their problems. I am not making an excuse for them but being cheerful and happy everyday in a job were you do nothing but screen people's problems and excuses isn't going to be all flowers, rainbows and ponies, if you know what I mean. The main point to that is, regardless of the nature of interaction with the servicing personnel, the borrower needs to be proactive in their efforts to deliver all the modification document requests and to receive a response on the matter. Unfortunately, all too often borrowers get into a situation where they become very passive in the situation and that does not do them any good. Now getting aggressive doesn't mean throwing stones at the servicing company but rather be responsible and organized in their actions and follow up. If they believed they sent everything in the first go around. Get on the phone and talk to someone and find out what was missing. Then send it in. Don't wait 3 months. Inquire when they can expect a response. Follow up the day after if no response was delivered. Pick up the phone and call in. Treat the situation like it is, important, a matter of keeping their home or losing it. Stay on top of it. Try and drive it forward. Don't let months go by. To some degree the idea of lawyering up or calling CFPB promotes this reaction of lackadaisical follow through. Time is the borrower's enemy. Just because there are rules that servicers shouldn't violate doesn't mean they don't. Just because they shouldn't be foreclosed doesn't mean they won't be. The regulations and rules do allow for foreclosures to be overturned or practices to be deemed improper but those battles take time. A borrower needs to fight for their own preservation in the here and now. If the borrowers start getting aggressive they can start to keep a log on who they speak with, what the topic was and a summary of the conversation. Keep a file on the matter until it is resolved. Track payments sent and received. Track payments applied and not. Keep paperwork sent. Demand dates be set. Follow up on items sent it. Make sure the servicer is not erroring. Overly communicate. This is as much on them as it is the servicer. NOBODY IS GOING TO CARE MORE ABOUT THEIR PROPERTY THAN THEM.If they get on top of the matter they will see it start to resolve itself more quickly. They have the CFPB on their side and they can get a lawyer as needed but they need to stop being victimized by their situation and actually take control of it to work it out. It is their house and their future. To that extent, they need to act like it. Harsh words, I know, but the point needed to be driven in.

Steve Babiak · Answer

Knowing somebody who works with mortgage paperwork, believe it or not those blank pages that seem so unimportant to normal people are VERY important to the bank; if the first page reads page 1 of 7, the bank will expect to see seven pages for that statement, even if the last six are all blank. Sounds crazy, but it is so true.Another excellent post from Dion.

Chris Seveney · Answer

@Angie Williams - first they could send their payments in but it should be for the mortgage amount they typically pay. If the house has equity in it then yes they could make out very well if they foreclose. Also depending on the state if there is no equity they could always go back after the owner with a deficiency judgement. They are probably best to get an Attorney

Chris Seveney · Answer

Angie Williams - typically in a forbearance they do not suspend all payments. They may suspend the back payments that are due and come up with a payment plan that they must follow for a period of time. If they follow what was outlined in the forbearance plan then they may modify the loan. This is the first time I have heard of all payments being suspended

Angie Williams · Answer

Dion DePaoli You have been more then helpful, I seriously appreciate you taking your time out to give me all this information that is very helpful for them. Are you an underwriter for a mortgage company?! Lol j/k I started the process for them online to report the loan company. They are elderly and aren't to savvy with computers and on what to write Sorry one last question, now knowing they have it in writing for them to suspend payments and naturally they did what the mortgage company told them to do. Should I advice an attorney at some point?

Dion DePaoli · Answer

@Angie WilliamsPlease share this information with your neighbors. That advice from the servicing agent is shameful. My lender or servicer advised me to stop making payments on my mortgage loan so I could qualify for a loan modification. What can I do? You should not trust anyone giving you this advice. Report companies giving you this advice by submitting a complaint with the CFPB online or by calling (855) 411-CFPB (2372).If you are having trouble making your mortgage loan payments, call the CFPB at (855) 411-CFPB (2372) to be connected with a U.S. Department of Housing and Urban Development (HUD)-approved housing counselor who can help you explore your options.http://www.consumerfinance.gov/askcfpb/274/my-lend...

Angie Williams · Answer

My neighbors have recent emails with the assigned loan agent telling them "not to pay their mortgage, and that their payments are suspended till a decision is made." I suppose a lawyer is not needed yet if this may be standard protocol. But I advised them to start paying their monthly payments anyways and about reporting them before they hire a lawyer. Thanks everyone a lot of great and useful information was a big help for me to pass along. Also, I learned a lot from this question for my own knowledge.